Simulating Inflation Forecasting in Real-Time: How Useful Is a Simple Phillips Curve in Germany, the UK, and the US?

 
Author/Editor: Clausen, Bianca ; Clausen, Jens R.
 
Publication Date: February 01, 2010
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper simulates out-of-sample inflation forecasting for Germany, the UK, and the US. In contrast to other studies, we use output gaps estimated with unrevised real-time GDP data. This exercise assumes an information set similar to that available to a policymaker at a given point in time since GDP data is subject to sometimes substantial revisions. In addition to using real-time datasets for the UK and the US, we employ a dataset for real-time German GDP data not used before. We find that Phillips curves based on ex post output gaps generally improve the accuracy of inflation forecasts compared to an AR(1) forecast but that real-time output gaps often do not help forecasting inflation. This raises the question how operationally useful certain output gap estimates are for forecasting inflation.
 
Series: Working Paper No. 10/52
Subject(s): Cross country analysis | Economic forecasting | Economic growth | Germany | Gross domestic product | Inflation | United Kingdom | United States

Author's Keyword(s): Real-time data | potential output | output gap | Phillips curve | inflation forecast
 
English
Publication Date: February 01, 2010
Format: Paper
Stock No: WPIEA2010052 Pages: 21
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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